C.A. Says Only “Damage” Necessary to Start Limitation Period, Not “Damages”

The language of the Limitations Act, 2002 continues to be interpreted by the courts and an important decision was handed down this week by the Court of Appeal. Hamilton (City) v. Metcalfe & Mansfield Capital Corporation was an appeal from a decision of Madam Justice Eva Frank, in which an action by the City of Hamilton, arising out of certain investments that it made, was dismissed as statute-barred. The Court of Appeal upheld her decision and, in so doing, provided some extensive comments about how section 5 of the Limitations Act, 2002 should be interpreted. The decision is a cautionary tale for litigants and their lawyers because it strongly suggests that the clock starts running under the Limitations Act, 2002 quite a bit earlier than many of them might have thought.

In 2007, the City made a $10 million investment in asset backed commercial paper. The investment was to mature about two months later but some three weeks after the purchase, the market for this form of investment collapsed. The City and others took certain steps to try to preserve the status quo, such as entering into a standstill agreement but ultimately, commenced this lawsuit two years less a day after the maturity date of the notes. This was several months past the two-year anniversary of the date on which the notes had been purchased. The City has never received any payment on the notes.

The defendants raised a limitation defence and the motions judge agreed with their position. She dismissed the action as having been brought out of time.

Although several causes of action were apparently pleaded, the argument in the Court of Appeal focused on the claim for negligent misrepresentation. The City advanced a number of arguments in response to the limitation defence but in this post, I am only going to discuss the main one. The City argued that it had only “discovered” its damage on September 26, 2007, the date on which the note had matured and on which default in payment was made. (Section 4 of the Limitations Act, 2002 provides that the two-year limitation period runs from the day on which the “claim was discovered”. Section 5 sets out the criteria for when a claim is “discovered” and one of them is knowledge (or imputed knowledge) that “injury, loss or damage had occurred”. This was the key phrase for purposes of the decision.

The Court of Appeal held that the City’s cause of action was complete, not when there had been default in payment but when it discovered that it had been misled about the asset structure underlying the notes. There seems to have been no dispute that the City had come to that realization more than two years prior to the commencement of the action.

Writing for the court, Laforme J.A. said:

The City’s position that damage occurred when the Devonshire notes matured also fails to appreciate the distinction between damage and damages. Damage is the loss needed to make out the cause of action… Insofar as it relates to a transaction induced by wrongful conduct, as I have explained, damage is the condition of being worse off than before entering into the transaction. Damages, on the other hand, is the monetary measure of the extent of that loss. All that the City had to discover to start the limitation period was damage.

He also noted that “The City was aware that it had incurred some loss” more than two years prior to commencing the suit even though it did not know the extent of the damages and thatfor the purpose of negligent misrepresentation claims, damage is the condition of being worse off than if the defendant had not made the misrepresentation”.

The City argued that the motions judge’s decision would have started a limitation period running “when the aggrieved party foresees or ought to foresee that future harm is inevitable”. However, Laforme J.A. rejected this interpretation of Justice Frank’s reasons. He said that he did not understand her “to say that foreseeability of future loss can trigger the limitation period” and reiterated that, for the limitation period to start running, the City had to have known that it had incurred a loss.

The latter clarification is reassuring: it seems clear that apprehension of some future loss will not trigger the commencement of the limitation period. But one is still left wondering just how concrete must the “knowledge” of loss be in order to start the limitation period? Here, it does seem that there was evidence upon which the court could reasonably conclude that the City of Hamilton had not just had a vague sense of unease about its investment. The motions judge found:

Mr. Boychuk acknowledged that he knew by the time he signed the Montreal Accord that the City would suffer a loss. He knew that the City would not be able to redeem its notes on the maturity date, that there were no buyers for the Notes at that time – at least not on a full recovery basis – and that if the Montreal Accord was successful, it would result in the conversion of the short term Devonshire Notes into longer term floating rate notes. Mr. Boychuk acknowledged that this would result in a present value loss to the City.

But what of a less sophisticated litigant? Is a subjective belief that one will probably be “worse off” and will suffer (or even has suffered) some sort of loss, all that is required? Or does that belief have to be founded on some more objective basis before the limitation period will begin to run? What if, in fact, the claimant has not yet suffered a loss by the time he thinks he has?

Certainly, I think that Justice LaForme’s emphasis on the distinction between “damage” and “damages” is welcome, particularly in the context of the Limitations Act, 2002. (It can be difficult to keep the two concepts separate though. Section 1 of the Negligence Act begins, “Where damages have been caused or contributed to by the fault or neglect of two or more persons” when probably, “damage” would have been a better choice.)

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